Yoram Dori, a spokesman for Peres, said the meeting lasted about 90 minutes and covered economic issues. Palestinian officials, speaking on condition of anonymity, said the session took place in a hotel in west Jerusalem, the Jewish side of the city.

Dori said the meeting was "the first of a series that will be held. There will be a continuation." He told The Associated Press that Peres would also meet other Palestinian officials.

With Israeli troops patrolling most Palestinian areas, and the two sides trading bitter recriminations, government ministers have not held any publicly announced meetings recently.

The dovish Peres has said the Israeli and Palestinian leaders should remain in contact despite the ongoing violence. Israeli media reported that Israeli Prime Minister Ariel Sharon had barred Peres from such meetings, but has now given him permission to see Palestinian officials responsible for economic issues and government reforms.

Peres had been expected to host a Monday evening in Jerusalem with Fayed, and Interior Minister Abdel Razak Yehiyeh, according to Palestinian spokesmen Nabil Aburdeneh. Both ministers were appointed recently by Arafat during a Cabinet reshuffle.

The talks were to focus on ways to ease the burdens faced by some 700,000 Palestinians living in seven West Bank cities and towns under Israeli military control, according to an Israeli government official, who spoke on condition of anonymity.

Palestinians said ministers from the two governments last met in March, a month of heavy bloodshed that culminated in a major Israeli invasion in the West Bank that lasted six weeks. The Israeli Foreign Ministry said it did not know the last time Cabinet ministers held face-to-face talks.

Israel's army launched its latest incursion into Palestinian cities after attacks that killed 31 Israeli civilians from June 18-20. Since then, more than 30 Palestinians have been killed, but no Israelis, and Israeli troops have taken over all but one of the eight major Palestinian cities and towns in the West Bank.

The period marks one of the longest stretches without an Israeli fatality since the fighting broke out in September 2000, although Palestinian militants have attempted to carry out attacks daily.

The Palestinian leadership has demanded Israeli forces leave the West Bank cities, but Israeli officials have said it is open-ended.

Israeli forces could remain in Palestinian areas for up to one year, until Israel finishes fencing off the West Bank from Israel, a senior security official said Sunday. Until the fence is completed, an Israeli presence in Palestinian towns and cities would be critical for preventing attacks, said the official who spoke on condition of anonymity.

"The heads of the security services say that we have to sit in the Palestinian areas," said Raanan Gissin, a spokesman for Sharon. "If you sit inside the cities, you can reduce the number of bomb belts that get out to the (suicide bombers), until you have a buffer."

In another development, Israelis and Palestinians confirmed that the two sides held secret talks in Italy last year, but the proposal they devised was immediately rejected amid the Mideast violence.

The plan, which was outlined by Israeli Foreign Minister Shimon Peres in February, was to begin with a cease-fire, followed by the recognition of a Palestinian state on the land Palestinian currently control. That was to be followed by subsequent negotiations on a final border for a Palestinian state.

The idea of declaring a Palestinian state without final borders was also included in the proposals presented by President Bush last month. Bush also called on the Palestinians to change their leadership.

Top officials from the United Nations, the United States, the European Union and Russia will meet at the United Nations next week to discuss their joint efforts to promote an end to the Palestinian-Israeli conflict, diplomats said Monday.

The meeting will be attended by Secretary-General Kofi Annan, Secretary of State Colin Powell, and senior EU and Russian officials, the diplomats said.

The Quartet are expected to hold talks on July 15 and to be joined on July 16 by senior officials from Saudi Arabia, Egypt and Jordan, the diplomats at the United Nations said, speaking on condition of anonymity.